KUALA LUMPUR (March 17): While investors appear to be warming up to better prospects ahead for Top Glove Corp Bhd, with the stock topping the actively traded list for the second day in a row as buying interest pushed its share price up over 31% in the last two days, analysts do not expect the world's largest glove maker to return to profitability soon.
This is despite Top Glove's recent announcement that it has started to raise the average selling prices (ASPs) of its gloves and that the industry's ASP is returning to pre-pandemic level, after logging another loss-making quarter, disappointing expectations of a better performance. Analysts think the price adjustment is not yet enough to fully offset cost increases.
Top Glove shares jumped 13.5 sen or 19.29% to close at 83.5 sen on Thursday. On Friday, it climbed another 8.5 sen or 9.58% to close at 92 sen. Trading volume spiked further to 290.07 million shares from Thursday's 184.96 million shares. Compared to a year ago, the group's share price is down 49.5%.
On Thursday, Top Glove announced it incurred a net loss of RM164.67 million for the second quarter ended Feb 28, 2023 (2QFY2023) — its third straight quarter in the red — compared to a net profit of RM87.55 million a year earlier, as revenue slumped to RM618 million from RM1.48 billion.
In light of the disappointing quarterly results, Hong Leong Investment Bank (HLIB) Research lowered its profit forecast for Top Glove for FY2023 to FY2025.
HLIB projects that the group will post a wider net loss of RM409.2 million for FY2023, from an estimated RM274.2 million. For FY2024, the group is expected to post a net loss of RM66.3 million against an estimated net profit of RM74.4 million previously, and a smaller net profit of RM174.3 million for FY2025 against an estimated net profit of RM182 million previously.
“Although raising ASPs may relieve some margin pressures, we do not expect this to bring Top Glove back to profitability soon, as the pricing adjustment is still not sufficient to fully account for the cost increases,” said HLIB in a note on Friday (March 17).
Meanwhile, MIDF Research said it remains cautious about Top Glove’s outlook, mainly due to limited room to pass on the increased costs via price adjustments, as customers can easily switch to other glove makers that offer competitive prices.
“Besides, we think that the group may remain in the red for the next one to two quarters, before attaining break-even, due to margin compression on the back of the ongoing oversupply of gloves and rising input costs,” it said.
MIDF lowered its FY2023 profit forecast for Top Glove to a net loss of RM503.6 million, from its previous estimate of a net profit of RM55.7 million.
“We also lowered our earnings forecasts for FY2024 by 46% and FY2025 by 3%. This is after accounting for higher production cost per unit due to poor utilisation and rising electricity tariffs, which more than offset the ASP adjustment,” said MIDF.
Most analysts have 'sell' calls
Bloomberg data showed 16 "sell" calls, five "hold" calls and one "buy" call on Top Glove, with a 12-month target price (TP) of 66 sen. The highest TP of RM1.05 came from HSBC, while the lowest TP of 45 sen came from JPMorgan and TA Securities Research.
HLIB and MIDF, on the other hand, maintained their "sell" recommendations on the stock. HLIB maintained its TP for Top Glove at 53 sen, while MIDF raised its TP slightly to 55 sen from 42 sen.
“Our revised TP of 55 sen is based on FY2024’s book value per share of 86 sen pegged to its five-year historical -1.5 standard deviation price-to-book value of 0.64 times,” said MIDF.
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